Waiting for rescue: Pakistan Steel Mills needs huge money injection to stay afloat

Published: November 10, 2013
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At present, the biggest concern for PSM is immediate injection of a huge amount of money, with some experts putting it at Rs20 billion, to purchase raw material to be able to stand on its feet again. PHOTO: FILE

At present, the biggest concern for PSM is immediate injection of a huge amount of money, with some experts putting it at Rs20 billion, to purchase raw material to be able to stand on its feet again. PHOTO: FILE

KARACHI: 

Pakistan Steel Mills (PSM), the biggest and only integrated steel mill in Pakistan, is going through its worst financial and production crisis in its history of three decades.

The mill has not only accumulated huge losses, especially in the last five years, it is also running at an embarrassingly low production capacity of just 3% – the lowest capacity utilisation in 31 years.

PSM, which is also the largest industrial complex in the country, has a huge workforce of over 16,000 employees – one of the core reasons why it is called a white elephant. But for some experts overstaffing – many of the employees have been appointed on political grounds – is not the biggest problem, it is something else.

At present, the biggest concern for the national giant is immediate injection of a huge amount of money, with some experts putting it at Rs20 billion, to purchase raw material to be able to stand on its feet again. However, the government, struggling to improve affairs at a number of loss-making enterprises, is finding it hard to pump money and is only releasing it in phases, with no significant improvement in the situation.

In September this year, the PML-N government decided to bail PSM out with a Rs2.9 billion package. Though most of the money has been provided, it has only gone to meet salary expenses of employees and to purchase some basic raw material.

This bailout package is too small compared to the four packages that the previous government approved in its tenure. The last administration injected over Rs40 billion in four phases, but since the money was provided in phases, it did not bring any positive change in the financial health of PSM.

“Pakistan Steel Mills is still manageable. Those who are saying that it is a hopeless case do not know much about the industrial complex,” said Haq Nawaz Akhtar, former PSM chairman.

“The mill should run at all cost, whether the government runs it under a private management or it is carefully privatised at certain terms,” said Akhtar, one of the longest serving PSM chairmen, who remained at the helm of affairs from 1981-1986. Before becoming chairman, Akhtar served PSM as a finance director from 1974-78.

Installed capacity of the mill is 1.1 million tons and it is capable of expanding production to three million tons. Because of poor planning, mismanagement and corruption, successive governments have never been able to run the mill even at its installed capacity.

Background interviews with people who had run PSM in its golden years suggest that vested interests have always thrived at the expense of this national asset. They blame successive managements of the mill for being incompetent.

“I think corruption is one of the few sins in which some heads of PSM were involved. Some of these have faced trials in the past,” said one of the top officials of PSM, but asked not to be named.

“What is more dangerous is criminal negligence and mismanagement and this is what drowned this important industrial complex,” he said.

Running at just 3% capacity, the mill is booking losses of at least Rs2 billion per month. “It can reach break-even at 70-75% capacity and to make profit, it needs to run at 80-85%, which looks impossible unless it buys raw material in big quantities,” the official said.

“One of the biggest reasons why PSM has gradually weakened is that the organisation faces a dearth of people who could replace the top management once they retire,” PSM’s former director Irshad Ali Rizvi told The Express Tribune. He retired in 2007.

The way forward

Akhtar believes that the government should put in place a private management, preferably comprising professionals who have prior experience to save the steel mill. This management will have to undertake three tasks – revival of the mill, expansion in production capacity and support the downstream steel industry operating close to the PSM premises.

Published in The Express Tribune, November 11th, 2013.

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Reader Comments (14)

  • shjailesh karanjkar
    Nov 10, 2013 - 10:02PM

    What is so great about it, let the company be in losses but Kashmir, Palestine, Burma Muslims “sufferings” at the hands of infidels is most important. Pakistan must produce more Nuclear weapons, may be Pakistan Railway suffers huge losses. After all, exporting terrorists around the world and bleeding India are the sole responsibility of Pakistan.

    Recommend

  • Parvez
    Nov 10, 2013 - 10:39PM

    Prtivatise it or sell it for scrap……….the land itself would fetch millions. In its present state it is a drain on the economy and has been for years.

    Recommend

  • LSE
    Nov 10, 2013 - 11:27PM

    @shjailesh karanjkar: I think i know what u r trying to say… but India is also doing the same in Pakistan. e.g. Baluchistan Insurgency. BUT IT DOESN’T MAKE IT RIGHT!! WE SHOULD LIVE IN PEACE AND HARMONY! 60-70 year life max… Better live it in peace!

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  • angry citizen
    Nov 11, 2013 - 9:30AM

    It had to happen with this institute, where senior positions were filled on political grounds, PSM own staff was involved in stealing raw material from the company and selling it on little lesser prices in the market. Pakistan International Airline , Pakistan Steel Mill , Pakistan Railways, Pakistan Post, Pakistan State Oil, Pakistan Government..rather all institutions starting with the name Pakistan have same fate i.e. destruction only..

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  • Bilal
    Nov 11, 2013 - 9:31AM

    Let it go bankrupt – why should people pay for incompetent management of this unit?Recommend

  • confused
    Nov 11, 2013 - 10:06AM

    I wish its privaizaion back in Musharaf’s era wasn’t stopped.

    Recommend

  • NK
    Nov 11, 2013 - 10:15AM

    Steel Mills is on Government ventilator. It is time to turn ventilator off.

    Recommend

  • Sodomite
    Nov 11, 2013 - 10:42AM

    @Parvez:
    Better still ask India to free Lallo Prasad from jail to live in Pakistan as penance. That way we can get him to fix PR.

    Recommend

  • Hari Om
    Nov 11, 2013 - 1:53PM

    The Pakistan Military’s obsession with boxing above its weight class and seeking military parity with India will inevitably lead to a situation such as this where there are limited resources available for national necessities such as having at least a one non decrepit integrated steel plant.

    Recommend

  • Yusuf
    Nov 11, 2013 - 4:05PM

    PSM Life is Over. Its Tax Payers been invested in Loss. Stop It. How PSM planns to pay back to Tax Payers of Pakistan. Give my money back or Go some where els for money. Please spare Pakistan. . Recommend

  • Nov 11, 2013 - 4:36PM

    unless the plant is able to achieve production at 85% of its installed capacity it can not survive. Either ensure it or if not able to do the same better take out the ventilator and do not waste the good money for bad purposes.

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  • Dhaka
    Nov 11, 2013 - 6:15PM

    I think we can buy pakistan steel mill if the law permits.This is good for pakistan, as they can benifit our technology and skills which the labours in pakistan lacking.

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  • Sajjad
    Nov 11, 2013 - 7:02PM

    Give it into private hands and see next day it’d be running at 100% of installed capacity. The thing is, government should not be involved in running businesses.Recommend

  • unbelievable
    Nov 11, 2013 - 8:13PM

    Save the money – you can buy steel anywhere – use the energy to keep people warm in winter and run the air conditioners in summer.

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